Lowest Funding Level in Five-Year History of Report
BOSTON, October 5, 2011 — The funded status of the typical U.S. corporate pension plan in September fell 7.9 percentage points to 70.1 percent, the lowest level since BNY Mellon Asset Management began tracking this data in 2006.
For the month of September, assets for the typical corporate plan fell 4.5 percent and liabilities increased 6.2 percent, according the BNY Mellon Pension Summary Report for September. The asset decline reflected the third month in a row of falling equities, while the rise in liabilities was tied to the 40-basis-point decline of the Aa corporate discount rate to 4.54 percent, the report said.
Plan liabilities are calculated using the yields of long-term investment grade corporate bonds. Lower yields on these bonds result in higher liabilities.
"Concerns about the sluggish economy, the European sovereign debt issues and the U.S. budget issues have all contributed to growing investor pessimism," said Jeffrey B. Saef, managing director, BNY Mellon Asset Management, and head of the Investment Strategy & Solutions Group. "As a result, they continue to flee equities and other risky assets and have increased their allocations to Treasuries."
Saef noted that the rise in liabilities was muted by the widening of corporate spreads by 14 basis points. However, he added, "The funded status of corporate plans has fallen dramatically since June. With interest rates falling to historically low levels, a sustained rally in the equity markets will be needed for the funding levels to recover."
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